Just about one year since the debut of its first game, ByteDance—the company known for short-video apps Douyin and Tik Tok—has grown to be the top publisher of hyper-casual games in China.
Now, on the back of its success in the segment, which includes lightweight, replay-able games, it wants to enter the hardcore gaming arena and leapfrog the established players. To succeed, ByteDance will have to take on current leader Tencent and longtime runner-up NetEase. The prize is a massively profitable gaming market worth about USD 152.1 billion in 2019 worldwide.
As the world’s most valuable startup, ByteDance has some crucial advantages as it prepares to shake up the gaming market. Here are the top five reasons why ByteDance could beat Tencent in its own playground.
1. ByteDance has demonstrated its ability to innovate
Founded in 2012, ByteDance has grown rapidly in its six-year lifespan in the Chinese tech sphere, where search engine Baidu, e-commerce giant Alibaba, and social and entertaining powerhouse Tencent have been dominant. The three, referred to as the Chinese BAT, are often considered China’s versions of Google, Amazon, and Facebook, respectively.
With ByteDance’s private market valuation surpassing USD 78 billion in 2018, some have even asked whether ByteDance might take over the “B” in this BAT. Unlike many unicorns, which aim for investment or acquisition from the big three, ByteDance appears to have its own plan to chart its success.
After experiencing a staggering rise thanks to Douyin and established content platform Jinri Toutiao, ByteDance is now also looking for a third growth curve. In the coming years, gaming is one of the sectors it is going to bet bigger, according to local media LatePost, citing a ByteDance insider.
2. ByteDance successfully poaches its competitors’ talent
ByteDance has hired more than 1,000 collaborators over the past few months as it schedules to release its first two non-casual games in the spring, both in domestic and overseas markets, according to a Bloomberg report.
As part of their aggressive recruiting spree, ByteDance took talent from big-name gaming companies like Tencent, NetEase, and Perfect World, people familiar with the situation told KrASIA.
Earlier in June, ByteDance reportedly set up a team of 100 people to work on its project “Oasis,” targeting heavy games. They worked on at least nine game demos at the time, and currently are working toward producing more games including role-playing games and massive multiplayer online role-playing platforms.
3. ByteDance has a massive pool of users
The Beijing-headquartered firm claimed to have more than 700 million daily active users (DAU) as of July, distributed across its apps globally—short-video platform Douyin and TikTok, Xigua, and Jinri Toutiao. Douyin’s DAUs have exceeded 400 million at the beginning of this year. Outside of China, TikTok has grown astronomically, beating out Facebook’s Messenger app to become the world’s second most-downloaded app, only behind WhatsApp.
These platforms can also be indispensable channels for marketing and promotions of new games. ByteDance could try to lure its huge pool of users, over 51% of which are Gen Z, or those born after 1995s, to try its games. Additionally, ByteDance manages what’s arguably the world’s best algorithmic recommendation system, which could help the firm quickly gain new users.
4. ByteDance has already conquered the hyper-competitive casual games market
Over thirteen games made by ByteDance or in partnership with other publishers became hits in 2019, entering the top 10 most-downloaded free games charts in China’s Apple app store.
Most of these are hyper-casual games that are usually very easy to play and became quickly mainstream. In ByteDance’s push in casual games, it has already proved its capability in marketing and leveraging its huge pool of users.
Industry watcher Liu Shiwu told KrASIA that ByteDance’s success in casual gaming lays a solid foundation for the firm’s further development in hardcore games, not only providing considerable revenue generated from ads and in-game purchases, but also shifting some of these casual games to more heavy games.
5. ByteDance has massive financial resources
China’s gaming industry is undergoing a downturn. From December 2018, when China ended a nine-month freeze on video-game licensing, only less than 2,000 game titles got approved by the State Administration of Press and Publications.
The number was about one-fifth of that in 2017. As a result, nearly 20,000 game companies closed their doors in 2019, unable to wait out the publishing delay.
“Games have their golden period to get published. Otherwise, they aren’t able to get popular or start earning, let alone getting their investments back,” a game company insider told KrASIA.
By comparison, ByteDance was not burdened by the development due to its diversified portfolio of businesses. It reportedly raked in RMB 140 billion (USD 20 billion) in revenue last year, increasing by 180% year-on-year, although the firm denied the report, saying that “the figure was not accurate”. Still, considering the numbers from previous years and the firm’s traction in 2019, ByteDances revenues might come close to the reported figure.
ByteDance’s challenges shouldn’t be overlooked
ByteDance is still a novice in developing and operating hardcore games, which have much higher barriers to entry than casual games.
For example, the company lacks well-known IPs (intellectual properties) to make its products stand out. IPs allow a company to adapt games from hit comics or TV shows for gaming design or develop from a self-owned flagship game, such as Tencent’s mobile video game Honor of Kings and the recent hit Call of Duty: Mobile.
In addition, the user life cycle of heavy games compared to hyper-casual games are significantly different. Usually, users play a hyper-casual game to kill time, which means companies mainly target new user growth, while hardcore games, which have much higher costs of developing, seek to avoid churn.
Last year, the global mobile game market grossed USD 61.7 billion, with a 14.8% year-on-year growth. With worldwide annual revenues of USD 1.5 billion, Tencent’s hyper-popular Honor of Kings took the top spot again in 2019, followed by its Game for Peace (a revamped version of the hit, PUBG).
Should Tencent be worried about the latest threat by ByteDance? Only time will tell.